It's also a bit of a fossil. It's really "notation-and-terminology as appropriate for the classical and romantic eras of Western art music". It completely ignores early music (modes, anyone? Trills that start on the upper note?). It doesn't admit the existence of non-12-tone scales even though they've got quite a following (and there are some very weird electric guitars out there to prove it). It asks questions about enharmonic notes, a concept which would make no sense to anyone up to the mid 18th C (who would be pained at the idea of B-flat and A-sharp being the same note). And although it teaches intervals, it doesn't ask the question why certain intervals sound good, and others bad - something which lies very close to the heart of music.
One gets the feeling that the exam exactly fitted the bill at the time when ABRSM first came into existence, a time when all the weird modern stuff hadn't yet happened, and the historically-informed-performance movement hadn't got off the ground, so basically, from a London perspective, music was what had happened North of the southern tip of Italy, between 1750 and 1900.
(small print: I don't know if ABRSM should get involved in what I'd consider truly theory of music. I get the feeling that the purely theoretical side of music comes and goes in waves. In some eras, theorists have flourished like stinging nettles, and life has become hideously complicated. After a while, practical performers lose patience with the whole caboodle, and usher in an era where we don't really care why it works, we just do it because it works. Then another bunch of people turn up wondering what it is that makes music sound good, and whether fifths should be pure, or what a scale is, or whatever, and strange electric guitars get built, or harpsichords with split keys, and off we go again... The majority of people, most of the time, can probably live quite happily without all this stuff, and those who need it, will bump into it quite readily anyway).